Tokyo, Hong Kong stocks lead Asian retreat

Yen rallies against major currencies; Taipei stocks soar again

By

V.Phani Kumar

HONG KONG (MarketWatch) -- Asian markets closed lower Tuesday, succumbing to intra-day volatility, with Japanese shares extending their streak of losses as the yen's strength hurt exporters such as Honda Motor Co. Hong Kong stocks were dragged down by early afternoon selling in heavyweights such as HSBC Holdings and China Mobile.

But Taipei-listed shares defied the trend, boosted by gains for China Airlines and Huaku Construction, after the opposition party Kuomintang's decisive electoral victory over the weekend.

Japan's Nikkei 225 average ended 1% lower at 13,972.63, finishing below the 14,000 point level for the first time since November 2005 and extending losses into the third straight session, as trading resumed after an extended holiday weekend.

The broader Topix index sank 2% to 1,350.20.

The Nikkei, the only benchmark index in Asia that offered negative returns in 2007, is currently 64% lower than the all-time high it hit in December 1989.

In currency trading, the U.S. dollar tumbled 0.8% to 107.34 yen and the euro skidded 0.9% to 159.36 yen as risk-averse investors reversed their carry trades. A carry trade is a practice where investors sell low-yielding currencies such as the yen to invest in high-yield assets.

In Hong Kong, the Hang Seng Index suffered another session of high volatility. The index rose as high as 26,800.52, before ending 2.4% lower at 25,837.78, while the Hang Seng China Enterprises index sank 3.1% to 14,999.90.

"I think that the mainland turned down Citigroup is a huge hit to confidence," said Andrew Clarke, a sales trader with SG Securities in Hong Kong. The Wall Street Journal reported Tuesday Chinese officials had rejected an offer to invest in Citigroup, spurring concerns there may be limits to how far foreign sovereign funds can be relied upon as funding sources.

Analysts also said the market was pressured by institutional selling and rumors sovereign wealth funds were scaling back exposure.

Australia's S&P/ASX 200 gave up 0.3% at 5,960, New Zealand's NZX 50 index shed 0.4% to 3,810.50 and South Korea's Kospi declined 1.1% to 1,746.95.

Taipei scores again

Taiwan listed stocks ended with strong gains for the second straight day, untouched by the weak sentiment that engulfed the rest of the region. The Weighted index added 3.1% at 8,428.84 during the day, on top of the 1.8% advance it managed in the previous session.

The rally was sparked by optimism after the KMT party, seen as being China-friendly, won 81 of the 113 seats in the Legislative Yuan, raising hopes the country's next government will focus on reforms aimed at boosting economic growth as well as improving relations with China.

"Opening tourism, lifting China investment restrictions and opening direct flights will likely be the main policy changes to come under a KMT-controlled government," Peter Kurz, a Citigroup analyst, wrote in a note to clients. "The vote result is clearly a mandate to quickly and substantially improve ties with China," he added.

Under a share swap agreement between the two companies, each Nikko Cordial share will be exchanged for 1,700 yen ($15.74) worth of Citigroup shares. The number of shares that will be exchanged will be based on Citigroup's volume weighted average price on the New York Stock Exchange over three days starting Tuesday.

Also on Tuesday, Citi is reportedly planning to announce a "sizable" dividend cut, according to a report in the Wall Street Journal. The bank is also getting a cash infusion of at least $10 billion and will write down as much as $20 billion in mortgage-related investments as part of its fourth-quarter earnings report, due on Tuesday, the Journal added.

In Sydney, shares of Centro Properties Group (CNP), Australia's second largest shopping mall owner, plummeted 30.2% after its chief executive Andrew Scott resigned, while the company made efforts to refinance its maturing debt.

In Hong Kong, shares of China Cosco Holdings (1919) slumped 7.6% in the weak market, although the container shipping major said its net profit for 2007 was likely to be "well above" 18 billion yuan ($2.48 billion), as compared with its earlier estimate of 12 billion yuan.

February gold futures climbed $6.7 to $910.1 an ounce in electronic trading, after rising $5.7 to $903.4 an ounce on the New York Mercantile Exchange. Crude oil for February delivery fell a cent to $94.19, after it added $1.51 at $94.20 a barrel on the Nymex Monday.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.